Opinion
Consolidated C.A. No. 17649-NC.
Submitted May 12, 2004.
Decided June 28, 2004.
Jay W. Eisenhofer and John C. Kairis, of GRANT EISENHOFER, P.A., Wilmington, Delaware, and Norman M. Monhait, of ROSENTHAL MONHAIT GROSS GODDESS, P.A., Wilmington, Delaware; OF COUNSEL: Judith L. Spanier, of ABBEY GARDY, LLP, New York, New York, Attorneys for Plaintiffs.
Michael D. Goldman, Peter J. Walsh, Jr. and Brian C. Ralston, of POTTER ANDERSON CORROON LLP, Wilmington, Delaware; OF COUNSEL: Michael L. Hirschfeld, of MILBANK, TWEED, HADLEY McCLOY LLP, New York, New York, Attorneys for Defendants.
MEMORANDUM OPINION
This derivative action stems from the purchase by New Valley Corporation of 99.1% of the common stock of BrookeMil Ltd., a subsidiary of Brooke Group, Ltd. (the "Transaction"). Pending before the Court is defendants' motion for summary judgment against plaintiff Richard C. Goodwin on the ground that he lacks standing because he does not satisfy the contemporaneous ownership requirement for derivative actions. For the reasons set forth in this Memorandum Opinion, defendants' motion is granted.
I. RELEVANT FACTS
Because this Memorandum Opinion involves a very narrow issue of law — the requirements of contemporaneous ownership in derivative litigation — only those facts relevant to resolve that issue are presented. For a more thorough description of the Transaction and the parties' arguments, see In re New Valley Corp. Deriv. Litig, 2001 WL 50212 (Del.Ch. Jan. 11, 2001).
A. Procedural History
Discussions regarding the Transaction began in 1997. The Transaction was presented at a special meeting of New Valley's board of directors on January 8, 1997. Following several meetings, Brooke publicly announced the Transaction.
Plaintiff Richard Fuss filed a derivative action on behalf of New Valley in March 1997 to recover damages allegedly caused by breaches of fiduciary duty by defendants in their approval of the Transaction.
Defendants include Brooke (a Delaware corporation with its principal place of business in Miami, Florida), Bennett S. LeBow, Howard M. Lorber, Arnold I. Burns, Ronald J. Kramer, Richard J. Lampen, Henry C. Beinstein, Barry W. Ridings, Richard S. Ressler and Victor M. Rivas. New Valley is named as nominal defendant.
In late November 1998, Goodwin served a demand letter on New Valley pursuant to section 220 of the General Corporation Law (the "DGCL") seeking to inspect New Valley's books and records relating to the Transaction. On December 11, 1998, Goodwin filed a complaint in this Court pursuant to DGCL § 220(c) to enforce his rights of inspection. Settlement in that action was reached and, on December 9, 1999, Goodwin filed a derivative action similar to that filed by Fuss almost two years earlier.
Section 220 allows a stockholder to inspect a corporation's books and records so long as the stockholder complies with certain formalities and states a proper purpose. See 8 Del. C. § 220.
8 Del. C. § 220(c) provides:
If the corporation . . . refuses to permit an inspection sought by a stockholder . . . or does not reply to the demand within 5 business days after the demand has been made, the stockholder may apply to the Court of Chancery for an order to compel such inspection.
On February 7, 2000, this Court ordered the two actions consolidated, with Goodwin's complaint serving as the operative complaint for purposes of the consolidated action. In the Order, the Court designated Grant Eisenhofer, P.A. and Abbey Gardy Squitieri LLP (currently called Abbey Gardy, LLP) as plaintiffs' Committee of the Whole. Rosenthal Monhait Gross Goddess, P.A. and Grant Eisenhofer were designated as Delaware Co-Liaison Counsel for plaintiffs.
Decl. of John C. Kairis in Supp. of Pls.' Resp. to Defs.' Mot. for Summ. J. (Apr. 8, 2004) ("Kairis Decl."), at Ex. E (Consol. Order).
Id.
An amended derivative complaint was filed on February 28, 2000 and defendants moved to dismiss the amended complaint on March 13, 2000 on several grounds. On January 11, 2001, this Court denied defendants' motion to dismiss in its entirety.
In re New Valley Corp. Deriv. Litig., 2001 WL 50212.
Defendants' current motion for summary judgment is directed solely at Goodwin and alleges that Goodwin lacks standing to serve as lead plaintiff due to a lapse in ownership of New Valley stock by Goodwin during the months of October 2000 through March 2001.
B. New Valley's Equity Structure, Its Recapitalization Plan, and Warrants Issued Pursuant to the Recapitalization Plan
Defendants also argue that if Goodwin is found not to have standing, the Court should sever the Fuss action and remove Goodwin's counsel from the plaintiffs' committee and as co-liaison counsel. This argument is addressed in Part IV of this Memorandum Opinion, at pages 17-19.
At the time of the Transaction, New Valley had three classes of outstanding stock: New Valley Common Stock ("Old Common Shares"), $15.00 Class A Increasing Rate Cumulative Senior Preferred Shares ("A Shares"), and Class B Cumulative Convertible Preferred Shares ("B Shares"). Pursuant to a May 1999 recapitalization plan (the "Recapitalization"), each A Share was converted into twenty common shares ("New Common Shares") and one warrant to purchase a New Common Share (a "Warrant" or "Warrants"); each B Share was converted into one third of a New Common Share and five Warrants, and each outstanding Old Common Share was converted into one tenth of a New Common Share and three tenths of a Warrant. Further, the number of authorized common shares was reduced from 850,000,000 to 100,000,000.
Goodwin did not vote any of his shares in favor of the Recapitalization. Kairis Decl. Ex. R (Decl. Of Richard C. Goodwin in Supp. of Pls.' Resp. to Defs.' Motion for Summ. J. (Apr. 5, 2004) ("Goodwin Decl.")).
Aff. of Karen A. Rose in Supp. of Defs.' Mot. for Summ. J. (Oct. 3, 2003) ("Rose Aff."), at Ex. 5 (April 14, 1999 prospectus).
The terms of the Warrants are set forth in a warrant agreement, dated June 4, 1999, and attached as Exhibit 4(c) to New Valley's April 14 prospectus issued in connection with the Recapitalization (the "Warrant Agreement"). The Warrant Agreement entitles Warrant holders to purchase one New Common Share of New Valley for each Warrant held. The exercise period of the Warrants begins on the effective date of New Valley's registration statement covering the shares underlying the Warrants and ends five years from that date. The original exercise price of the Warrants is $12.50, but the Warrant Agreement allows for adjustments.
Rose Aff. Ex. 6.
Id. § 6(c). The New Common Shares purchasable by warrant holders are referred to in the Warrant Agreement as "Warrant Shares."
Id. § 6(a).
Id. § 6(c).
Importantly, section 6 of the Warrant Agreement, which provides, among other things, the rights of Warrant holders, states:
(d) No Warrant holder, as such, shall be entitled to vote or to receive dividends or shall otherwise be deemed to be the holder of Common Shares for any purpose, nor shall anything contained herein or in any Warrant Certificate be construed to confer upon any Warrant holder, as such, any of the rights of a stockholder of the Company or any right to vote upon or give or withhold consent to any action of the Company (whether upon any reorganization, issuance of securities, reclassification or conversion of Common Shares, consolidation, merger, sale, lease, conveyance, or otherwise), receive notice of meetings or other action affecting stockholders (except for notices expressly provided for in this Agreement) or receive dividends or subscription rights, until such Warrant Certificate shall have been surrendered for exercise accompanied by full and proper payment of the Exercise Price as provided in this Agreement and the Warrant Shares thereunder shall have become issuable and until such person shall have been deemed to have become a holder of record of such Warrant Shares.C. Goodwin's (Changing) Stake in New Valley
Id. § 6(d) (emphasis added).
Goodwin has invested in various New Valley securities since 1996, holding New Valley stock through a personal account at the Pennsylvania Merchant Group (the "Personal Account"), an IRA account with the Pennsylvania Merchant Group (the "IRA Account"), the Goodwin Foundation, and the Goodwin Trust.
At the time of the Transaction, Goodwin was the beneficial owner of 11,700 B Shares. By October 1998, Goodwin owned 1,600 A Shares and over 73,000 B Shares. In November 1998, Goodwin purchased an additional 1,000 A Shares and by April 1999, Goodwin had increased his holdings of B Shares to over 106,000. Following the Recapitalization, Goodwin held over 57,000 New Common Shares and more than 500,000 Warrants.
Goodwin Decl. ¶ 2.
Id. ¶ 3.
Id.
Id. ¶ 5.
Goodwin began to divest his holdings in New Valley in June 2000. By June 30, 2000, Goodwin had sold all of his New Common Shares in the Personal Account, as well as all of his New Common Shares in his IRA Account. Moreover, by October 2000, Goodwin disposed of all of the New Common Shares in the Goodwin Foundation account. Between October 2000 and March 2001, Goodwin's holdings in New Valley consisted only of Warrants. He owned no stock during that time.
See Rose Aff. Ex. 7 (Personal Account Statement) (showing sale transactions beginning on June 15, 2000).
Id. (showing only Warrants in portfolio holdings).
Id. Ex. 8 (IRA Account Statement) (showing only Warrants in portfolio holdings).
Id. Ex. 9 (Goodwin Foundation Account Statement) (showing only Warrants in portfolio holdings).
Goodwin Decl. ¶ 5.
On March 23, 2001, Goodwin purchased 100 New Common Shares for $340.50.
Rose Aff. Ex. 10 p. 5 (Personal Account Statement).
II. STANDARD
Court of Chancery Rule 56 is the basis for summary judgment motions. A motion for summary judgment is granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In considering the motion, the Court must view the facts in the manner most favorable to the nonmoving party, and make all factual inferences in favor of the nonmoving party.Here, there are no factual disputes. The parties agree that Goodwin did not hold New Common Shares from October 2000 through March 2001. They agree that aside from this time period, Goodwin has continuously owned shares of New Valley from 1996 through the present. Finally, both agree that during the October 2000 through March 2001 time period, Goodwin held Warrants. The question of law that this Court must decide is whether such facts satisfy the continuous ownership requirement.
III. ANALYSIS
A. The Continuous Ownership Requirement
Section 327 of the DGCL forms the basis of the continuous ownership requirement. It provides:
In any derivative suit instituted by a stockholder of a corporation, it shall be averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the transaction of which such stockholder complains or that such stockholder's stock thereafter devolved upon such stockholder by operation of law.
8 Del. C. § 327. Court of Chancery Rule 23.1 contains an analogous requirement:
In a derivative action brought by 1 or more shareholders or members to enforce a right of a corporation or of an unincorporated association, the corporation or association having failed to enforce a right which may properly be asserted by it, the complaint shall allege that the plaintiff was a shareholder or member at the time of the transaction of which the plaintiff complains or that the plaintiff's share or membership thereafter devolved on the plaintiff by operation of law.
Ct. Ch. Rule 23.1.
Although section 327 does not explicitly require continuous stock ownership to maintain a derivative action, that requirement has been a staple of Delaware law for over two decades. In Lewis v. Anderson, the Supreme Court wrote:
We conclude that 8 Del. C. § 259, 261 and 327, read individually and collectively, permit one result which is not only consistent but sound: A plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit.
477 A.2d 1040, 1049 (Del. 1984).
This rule, recently reaffirmed by the Supreme Court in Bradley v. First Interstate Bancorp, has become a bedrock tenet of Delaware law and is adhered to closely. Warrants aside, had Goodwin not purchased the New Common Shares in March 2001, there would be no question that he would have no standing to pursue a derivative claim on behalf of New Valley.
748 A.2d 913 (Del. 2000) (mem.), aff'g In re First Interstate Bancorp Consol. S'holder Litig., 729 A.2d 851, 867-68 (Del.Ch. 1998).
See Ash v. McCall, 2000 WL 1370341, at *12 (Del.Ch. Sept. 15, 2000) (describing the continuous ownership requirement as "iron-clad").
Goodwin argues that because he has generally been a long-term holder of New Valley stock, including at the time of the Transaction, when the derivative action was filed, and the present time, the policy behind the continuous ownership requirement, which is to "eliminate abuses associated with a derivative suit," would not be served by finding a lack of standing. Essentially, he argues that his subsequent purchase or stock bookends a short time span of not holding stock punctuating continuous ownership by a long-term investor.
Lewis, 477 A.2d at 1046.
To allow the subsequent purchase to complete the story, however, would essentially allow Goodwin to "buy back" into the litigation. Such an action, even though by a formerly long-term stockholder as opposed to a new investor, is exactly the type of action the continuous ownership requirement is designed to prevent. Just as Goodwin could not have bought his way into a derivative suit at its outset, so too can he not buy his way back into such a suit after losing his standing.
Goodwin has stated that he "did not realize that [his] sale of New Valley stock while still retaining New Valley warrants might affect [his] standing as a plaintiff in this case." The continuous ownership requirement, however, has been held applicable even in situations where individuals' stock ownership has been involuntarily terminated in, for example, cash-out mergers. Here, Goodwin voluntarily sold his shares. Again, warrants aside, once he did so, he lost standing to pursue this derivative litigation as lead plaintiff.
Goodwin Decl. ¶ 5.
E.g., Kramer v. W. Pac. Indus., Inc., 546 A.2d 348 (Del. 1988); Penn Mart Realty Co. v. Perelman, 1987 WL 10018 (Del.Ch. Apr. 15, 1987). Indeed, Lewis v. Anderson, the very case that initially recognized the continuous ownership requirement, involved the involuntary loss of stock in the nominal defendant due to a merger. See Lewis, 477 A.2d 1042-43 (discussing how plaintiff shareholders lost their shares).
Moreover, merely because Goodwin loses his standing as lead plaintiff, he does not lose his right to be represented in the derivative action filed by Fuss. As a holder of New Valley common stock, he will be represented in the continuing litigation; he merely will not be able to lead it. There is no wrong that will be left unremedied.
Lewis, 477 A.2d at 1050.
As such, the continuous ownership requirement is applicable and Goodwin's status as a long-term investor in New Valley does not lead the Court to conclude otherwise. The question remains, then: Is Goodwin's ownership of Warrants sufficient to meet the requirement?
B. The Warrants Are Not Sufficient To Satisfy the Continuous Ownership Requirement
A warrant is generally "[a] certificate entitling the owner to buy a specified number of shares at a specified time(s) for a specified price." Essentially, a warrant is a contract that locks in terms by which the holder may buy stock in a company. A warrant holder is not, however, a stockholder; she has not yet made an investment in the company entitling and exposing her to the benefits and risks of stock ownership.
CLYDE P. STICKNEY ROMAN L. WEIL, FINANCIAL ACCOUNTING: AN INTRODUCTION TO CONCEPTS, METHODS, AND USES, at G-96 (8th ed. 1997).
Such characteristics are similar to other convertible securities that have been found insufficient to satisfy the standing requirement of § 327. In Harff v. Kerkorian, this Court held that "[d]ebenture holders are not stockholders and their rights are determined by their contracts," and that "[t]he holder of an option to purchase stock is not an equitable stockholder of the corporation." In reaffirming that a convertible debenture holder does not have standing to bring a derivative action, the Supreme Court referred to the logic in Harff:
324 A.2d 215, 219 (Del.Ch. 1974), aff'd in part and rev'd in part on other grounds, 347 A.2d 133 (Del. 1975).
"That a bond is convertible at the sole option of its holder into stock should no more affect its essential quality of being a bond than should the fact that cash is convertible into stock affect the nature of cash. Any bond, or any property, for that matter, is convertible into stock through the intermediate step of converting it to cash."
Simons v. Cogan, 549 A.2d 300, 303 (Del. 1988) (quoting Harff, 324 A.2d at 220 (quoting In re Will of Migel, 336 N.Y.S.2d 376, 379 (N.Y. Sur. 1972))). Although Simons did not address section 327, but rather whether there is a fiduciary duty owed to holders of convertible debentures, the same principles underlying it apply here.
This logic holds true for warrants as well. Warrants are contractual entitlements. They provide the right, and the means by which, to exchange an asset (presumably cash) for stock at specified terms. Only by taking the "intermediate step" noted in Harff — investing something of value ( i.e., meeting the exercise terms of the warrant) in the issuing company — does a warrant holder become a stockholder. As with convertible debentures, the "convertibility" feature of warrants "does not impart an equity element until conversion occurs." Or, as the United States Supreme Court has described, a warrant holder's "rights are wholly contractual" and a warrant holder "does not become a stockholder, by his contract, in equity any more than at law."
Id.
Helvering v. S.W. Consol. Corp., 315 U.S. 194, 200-01 (1942) (citations and internal quotations omitted).
Moreover, the very language of the Warrant Agreement supports this notion. The Warrant Agreement states that nothing "contained [in the agreement] or in any Warrant Certificate [should] be construed to confer upon any Warrant holder, as such, any of the rights of a stockholder of the Company . . . until such Warrant Certificate shall have been" exercised and converted into stock. The contractual language authorizing the Warrants is clear and unambiguous that Warrant ownership is not intended to be construed as providing any of the rights that stock ownership does.
Rose Aff. Ex. 6, § 6(d).
The caselaw cited by Goodwin is inapposite. Goodwin states, "like the contracts in Pennington [ v. Neukomm] and Jones v. [ Taylor,] Goodwin's warrants are contracts entitling him to shares of New Valley common stock at a set price." Contrary to Goodwin's characterization, neither of those cases involved contracts entitling the holder to shares at a set price. In both Pennington and Jones, the contracts were memorializations of the purchase of the stock itself.
1973 WL 463 (Del.Ch. Oct. 7, 1973), aff'd, 344 A.2d 386 (Del. 1975) (mem.).
348 A.2d 188 (Del.Ch. 1975).
Pls.' Resp. to Defs.' Mot. for Summ. J., at 16 (April 8, 2004).
Goodwin also cites to Shaev v. Wyly, 1998 WL 13858 (Del.Ch. Jan. 6, 1998), aff'd, 719 A.2d 490 (Del. 1998) (mem.), and Helfand v. Gambee, 136 A.2d 558 (Del.Ch. 1957), for the notion that the fact that he was only a prospective shareholder of New Valley does not mean he should not be deemed to meet the continuous ownership requirement. These cases, however, involve corporate reorganizations and spin-offs of wholly owned subsidiaries by corporations in which the plaintiff held stock, and are not analogous to one involving a plaintiff whose only interest in a corporation is a warrant.
In Pennington, a separation agreement required the defendant to transfer certain stock to his wife at the end of a six-year period. If he were to sell or dispose of the stock before the expiration of that period, then a portion of the value received would be substituted for the stock. The plaintiff brought a derivative suit on behalf of the corporation prior to the expiration of the six-year period. Despite that the plaintiff might never have received the stock, the court found she had a sufficient equitable interest in the stock so as to have standing to bring such a suit. In so holding, the court stated, "in one sense of the word [plaintiff] has already purchased the stock by entering into the separation and property settlement agreement with [defendant]."
Pennington, 1973 WL 463, at *3.
Similarly, in Jones, the plaintiff had already purchased the stock in the corporation in whose name she brought a derivative suit. In Jones, the plaintiff entered into a contract by which she released all possessory interest in the stock of a corporation to her mother. In return, the mother promised to execute a will bequeathing the plaintiff one-half of the stock of the corporation at the time of the mother's death. Here, again, the court found that the plaintiff "qualifie[d] as [having] the necessary equitable interest to maintain a derivative suit." And, once again, the basis of that holding was that the plaintiff had already "bargained for the eventual ownership of the stock." The "mother's death, though uncertain . . ., was an inevitable event and plaintiff's interest was enforceable after the mother's death." Pennington and Jones both involved situations where the plaintiff had already given consideration for stock; no intermediate step was necessary and there was no "convertibility" feature. Whereas warrant holders have paid for an option to obtain stock of a corporation in the future, the plaintiffs in Pennington and Jones had paid for the stock already. Warrant holders have a choice whether to take an investment risk or not; the contracts in Pennington and Jones represented terms on which that choice was already made.
Jones, 348 A.2d at 192.
Id.
To put it in the language of Harff, for the Warrants to convert to stock involves an "intermediate step" to be taken by the Warrant holders. No such intermediate step was needed in Pennington or Jones. Further, Pennington and Jones were decisions relying in large part on contract language. The language of the Warrants (which are a form of contract) is clear as day. They do not confer an interest that may be said to satisfy the continuous ownership requirement.
Harff, 324 A.2d at 220.
I recognize that the plaintiff's interest in Pennington was subject to divestiture if the defendant sold the stock before the expiration of the six-year term. This does not defeat the central characteristic of the contract at issue in that case, by which the plaintiff invested in the stock or the proceeds from its sale. Merely because a stock interest is subject to involuntary divestiture does not lead to the conclusion that the holder of such interest fails to meet the requirement of continuous ownership. If that were the case, no stockholder would meet the continuous ownership requirement since all corporations are entitled to engage in cash-for-stock mergers pursuant to 8 Del. C. § 251, with those objecting (generally) entitled only to the appraisal remedy.
Finally, the policy of the continuous ownership requirement is furthered by this outcome. Contrary to Goodwin's argument, the policy behind the rule is not solely to prevent strike suits. As set out in Lewis, the purpose of the rule is "to eliminate abuses associated with a derivative suit." Strike suits are the most cognizable form of abuse and caselaw focuses on preventing them. But this focus does not imply that strike suits are the only form of abuse of the derivative suit.
Lewis, 477 A.2d at 1046.
See Jones, 348 A.2d at 191 ("Turning to the policy behind § 327, it is well recognized that the section was enacted to eliminate strike suits and other abuses which developed along with the derivative suit.").
As discussed, Warrant holders have not taken an investment risk in a company. Rather, they have paid for an option to take an investment risk in a company. To allow Warrant holders' standing to bring suit would be to unfairly allow those who have not taken an investment risk to use a procedure designed to protect those who have taken such a risk. This would certainly be an abuse of the derivative suit.
Moreover, one can certainly foresee a situation, based on an opposite outcome in this case, where warrant holders would initiate a derivative action and then come to this Court asking it to reform their warrants so as to extend a contractual expiration date through the resolution of the derivative action they bring. Such an opportunity seems to logically flow from the opposite outcome of this case, and would certainly seem to lead to more potential for abuse of derivative litigation.
For all of the above reasons, I conclude that the Warrants in this matter are not a sufficient basis for satisfaction of the continuous ownership requirement. Because Goodwin does not satisfy the continuous ownership requirement, defendants' motion for summary judgment as to Goodwin's standing is granted.
IV. GRANT EISENHOFER SHOULD NOT BE DISMISSED
Since defendants' motion for summary judgment as to Goodwin's standing has been granted, the Court now addresses defendants' argument that because Goodwin is no longer a lead plaintiff, Grant Eisenhofer should be removed as Delaware Co-Liaison Counsel and as part of plaintiff's Committee of the Whole.
Defendants argue that since Goodwin selected Grant Eisenhofer, and Goodwin has been dismissed as a lead plaintiff, Grant Eisenhofer should not be allowed to continue in this action. They frame Grant Eisenhofer's ability to remain in the action as an "important policy question: whether an attorney without a client should be permitted to continue to prosecute a derivative case."
Modified Reply Mem. of Law In Supp. of Defs.' Mot. for Summ. J., at 2-3 (May 12, 2004). Defendants initially appeared to seek dismissal based on alleged misconduct by Grant Eisenhofer during the course of discovery. However, while defendants address the alleged misconduct in their reply brief, id. at 11-12, they state that "[t]he issue is not, as Plaintiff would have the Court believe, one of attorney disqualification for misconduct." Id. at 2. Regardless, as this Court has stated in denying a disqualification motion, "the litigant moving for disqualification will be called upon to show how its rights may have been prejudiced." Benchmark Capital Partners IV, L.P. v. Vague, 2002 WL 31057462, at *4 n. 23 (Del.Ch. Sept. 3, 2002). Any theoretical prejudice caused by the alleged actions is remedied in this Memorandum Opinion by the dismissal of Goodwin as a lead plaintiff. Grant Eisenhofer may still represent the viable plaintiff (Fuss) on behalf of the company and its stockholders.
This policy question, however, is not implicated. A derivative action is brought on behalf of, and to benefit, not simply the lead plaintiff in the action. Rather, derivative actions are brought for the benefit of the company and its stockholders. This Court's order of consolidation named Grant Eisenhofer as part of plaintiffs' Committee of the Whole and Delaware Co-Liaison Counsel for plaintiffs. In that capacity, Grant Eisenhofer represents New Valley's stockholders. The order of consolidation did not place Grant Eisenhofer in that capacity as a representative of Goodwin alone.
Defendants, in their opening brief, stated "if Goodwin's counsel are allowed to participate after Goodwin's dismissal, it would create a precedent that would allow counsel to maneuver himself into derivative litigation using a plaintiff who has no intention of remaining a stockholder, and then continue on his own behalf after the disappearance or dismissal of his erstwhile client." Mem. of Law in Supp. of Defs.' Mot. for Summ. J., at 16 (Oct. 3, 2003). Defendants do not raise this policy issue again in their reply brief; however, I pause to note that no allegation has been made that Grant Eisenhofer acted in such fashion, and that hypothetical fact pattern is not addressed in this Memorandum Opinion.
Defendants' counsel have no standing to select who represents the plaintiffs in this action. Plaintiffs are entitled to retain the counsel of their choice. Importantly, neither Fuss nor any other stockholder has raised concerns regarding Grant Eisenhofer's representation. For these reasons, defendants' motion to dismiss Grant Eisenhofer as part of plaintiffs' Committee of the Whole and Delaware Co-Liaison Counsel for plaintiffs is denied.
See Deptula v. Steiner, 2003 WL 23274846, at *1 (Del.Super. Dec. 15, 2003) ("A litigant should, absent a genuine conflict of interest, be able to choose his counsel."); see also Unanue v. Unanue, 2004 WL 602096, at *2 (Del.Ch. Mar. 25, 2004) (presenting standard for disqualification).
V. CONCLUSION
For the foregoing reasons, Goodwin is removed as co-lead plaintiff in this case. Grant Eisenhofer will remain in their capacity as counsel. The amended derivative complaint filed on February 28, 2000, will remain the operative complaint in this action. The parties shall confer as to a timetable for completion of discovery and promptly submit to the Court either a proposed pretrial scheduling order or proposed date for pretrial conference.
IT IS SO ORDERED.